The Federal Energy Regulatory Commission (FERC) has proposed requiring the operators of centralized wholesale power markets to collect and provide to FERC a broad range of market participant data, including (i) each market participant’s “Legal Entity Identifier” (LEI), which is a unique alpha-numeric identifier used by other regulatory agencies, (ii) “Connected Entity” data, which would identify affiliates, officers and other entities that have ownership, employment, financial, or contractual relationships with the market participant, and (iii) a description of the Connected Entity relationships. This initiative is intended to bolster FERC’s ability to investigate trading patterns and detect manipulation in energy markets. The proposed rule could prove to be a substantial burden on market participants that would have to submit the data to market operators for submission to FERC. Comments on FERC’s proposal are due November 30, 2015.
Scope of Proposed Rule. FERC’s proposed rule would apply to the regional transmission organizations (RTOs) and independent system operators (ISOs) that operate wholesale power markets (other than the ERCOT region in Texas). FERC defines “market participant” broadly to include any entity participating in the RTO/ISO markets (whether as seller or buyer), not just RTO/ISO members or FERC-regulated “public utilities.” The markets covered by this definition include both physical markets (such as day-ahead and real-time markets) and financial markets (such as virtual trading and financial transmission rights).
Definition of “Connected Entity.” FERC would define a “Connected Entity” as:
Affiliates – any entity that directly or indirectly owns, controls, or holds with power to vote 10% or more of the ownership instruments of a market participant, including but not limited to voting and non-voting stock and general and limited partnership shares; or an entity 10% or more of whose ownership instruments are owned, controlled, or held with power to vote, directly or indirectly, by a market participant; or an entity engaged in FERC-jurisdictional markets that is under common control with the market participant;
Company Employees – the chief executive officer, chief financial officer, chief compliance officer, and traders of a market participant (or employees who function in those roles, regardless of their titles);
Lenders and Investors – any entity that is the holder or issuer of a debt interest or structured transaction that gives it the right to share in the market participant’s profitability, above a de minimis amount, or that is convertible to an ownership interest that, in connection with other ownership interests, gives the entity, directly or indirectly, 10% or more of the ownership instruments of the market participant; or an entity 10% or more of whose ownership instruments could, with the conversion of debt or structured products and in combination with other ownership interests, be owned or controlled, directly or indirectly, by a market participant; or
Asset Managers – any entity that has entered into an agreement with the market participant that relates to the management of resources that participate in FERC-jurisdictional markets, or otherwise relates to operational or financial control of such resources, such as a tolling agreement, an energy management agreement, an asset management agreement, a fuel management agreement, an operating management agreement, an energy marketing agreement, or the like.
Use of LEIs. The LEI system is a standard identification system used by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). FERC proposes that each RTO and ISO require its market participants to obtain an LEI and report it to the RTO or ISO. FERC also would require each RTO or ISO market participant to report its Connected Entities’ LEIs, if the Connected Entities have them.
Reporting Connected Entity Data. Under FERC’s proposal, each RTO and ISO would have to amend its tariff to require that, as a condition of participating in its markets, each market participant report data on its Connected Entities to the RTO or ISO. FERC would require market participants to update the filed information within 15 days of any change in the data and annually certify that their Connected Entity data is comprehensive and accurate. RTOs and ISOs would also be required to provide FERC access to this Connected Entity data on an ongoing basis. Because the scope of this Connected Entity data is broader than what is required under existing RTO and ISO affiliate disclosure requirements, FERC suggests that the RTOs and ISOs could eliminate their existing affiliate disclosure requirements. Finally, FERC would have the authority to audit RTO and ISO market participants to confirm the accuracy of Connected Entity data submitted to the RTO or ISO, and recommends that RTOs and ISOs adopt tariff provisions authorizing them to conduct similar audits.
Impact on Market Participants. FERC’s proposal could be a substantial burden on market participants. The initial reporting obligation could require market participants, like non-public utilities, to collect and report significantly more information to the RTOs and ISOs than is currently required. The reported Connected Entity data also must be updated regularly to reflect changes, which adds to the burden. The expanded reporting obligation increases compliance and enforcement risk to market participants. Concerned market participants should consider submitting comments on FERC’s proposal.